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Top Trades for Mon, 07 Oct 2019 12:11 – Coffee Futures (/KC) and SPWR

/KC back to $97, always fun to buy down there with a stop below $95.

  • China has added more than 100 metric tons of gold to its reserves since it resumed buying in December, as the country continues to buy gold to diversify its reserve assets away from the dollar amid strained relations with the U.S.
  • September's increase of 5.9 mt by the People's Bank of China follows the addition of 99.8 mt through August.
  • Russia also has been adding substantial quantities of bullion; central banks worldwide have snapped up more than 450 mt during the first eight months of 2019, helping push total gold demand to a three-year high, the World Gold Council has said.
  • Central banks have been major buyers of gold and likely will continue to do so as protectionist policies and geopolitical concerns add to demand, says Suki Cooper, precious metals analyst at Standard Chartered Bank.
  • December Comex gold edges lower, -0.3% to $1,509/oz.
  • The Trump administration says it will impose tariffs on bifacial solar panels (TAN -0.5%) beginning Oct. 28, the U.S. Trade Representative's office announces, eliminating a loophole granted in June for the product and will be subject to the 25% duties announced on imported equipment in early 2018.
  • Bifacial panels are gaining traction since their double-sided nature means they absorb more power and are thus more efficient, but they are in the early stages of development and a relatively small part of the ecosystem, with Bloomberg estimating the panels comprised ~3% of the global market in 2018.
  • "Most investors had expected some form of cap to be put in place and not an outright reversal of the policy," says Cowen analyst Jeffrey Osborne, and Goldman Sachs' Brian Lee warns to "expect significant volatility across solar equities near-term."
  • Lee says U.S.-based manufacturers such as First Solar (FSLR -1.2%) and SunPower (SPWR -0.3%) will be "key beneficiaries," while Chinese solar players with bifacial capacity expansion plans likely will be "the most negatively impacted from this unexpected development."
  • Chinese names including JinkoSolar (JKS -0.3%), Canadian Solar (CSIQ -2.2%), ReneSola (SOL) and Yingli Green Energy (OTCPK:YGEHY +6.2%) show mixed results in early trade.
  • Also: SEDG -1.5%ENPH -1.2%VSLR +2.2%RUN -0.1%.

There's a trade:  We like Sunpower (SPWR) anyway and they went on sale since we got our and we'd LOVE to own them at $10 for the long run as $10/share is $1.4Bn and we know SPWR is capable of earning over $200M for the year and they did make $121M last Q though probably still a loss this year but, going forward – I think they'll do great.  

Year End 30th Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
Revenue $m 2,507 3,027 1,576 2,553 1,794 1,726 1,670 1,974 2,217 -7.2%
Operating Profit $m 158.9 251.2 -206.3 -371.9 -1,025 -849 -288.5      
Net Profit $m 95.6 245.9 -187 -448.6 -929.1 -811.1 -216.3 -53.9 28.2  
EPS Reported $ 0.69 1.55 -1.39 -3.25 -4.49 -5.76 -1.66      
EPS Normalised $ 0.70 1.62 -1.36 -2.57 -1.48 -3.15 -1.75 -0.34 0.19  
EPS Growth %   +131.5                
PE Ratio x           n/a n/a n/a 55.5  
PEG x           n/a n/a n/a 0.58
Profitability

They can go lower, so we shouldn't go crazy but 2022 options are out so I'd say selling 10 2022 $10 puts at $3.90 ($3,900) is a no brainer and we can put 1/2 back to work on a spread like this:

  • Sell 10 SPWR 2022 $10 puts for $3.90 ($3,900)
  • Buy 15 SPWR 2022 $12 calls for $3.40 ($5,100) 
  • Sell 15 SPWR 2022 $17 calls for $2 ($3,000) 
  • Sell 5 SPWR Jan $12 calls for 0.85 ($425) 

That's a net $2,225 credit on the $7,500 spread and, if it goes lower, we'd be happy to roll down the long calls at $2.50/$5 roll ($3,750), which would put us in a $10,000 $7/17 spread for $1,525.  If it's flat or down, we sell 8 more sets of short calls for $3,200 or more and that puts us back to a credit anyway so figure net $8 on 1,000 shares is our worst case.  If SPWR goes up, we roll the short calls but we'll be happy to buy more long spreads if that becomes a problem.  Lots of ways to win – not many ways to lose – that makes it a nice trade! 

Think or Swim says ordinary margin is $3,889.62 on the short calls so not very efficient but it's a stock we'd REALLY like to own long term – certainly going on the Watch List!  Assuming no fancy stuff we could make $9,725 (437%) because of the credit PLUS whatever bonus money we make selling a few calls along the way.  


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